If you’re similar to the average person, you probably have a budget that you made years ago sitting in an excel spreadsheet somewhere untouched. Or, you may have gone a step further and set up your spending on an app, so you have a place to keep track of purchases. Either way, chances are that you don’t look at your budget very often, and it’s even less likely to be up to date.

While budgeting itself can feel restrictive, knowledge really is key to staying ahead of the game when it comes to your finances. We’ll take a look at how laying out not just your monthly budget, but your actual monthly spending can help you plan for your future financial needs.

1. Check your account statements

The number one guide to knowing where your money goes is to track it… all of it. That means looking back over the past three months’ worth of financial statements to categorize and identify all spending. Include your checking, savings, credit card and any other account you use to make purchases.

You can complete this step manually by creating your own categories in an excel spreadsheet or, if you’d prefer, consider a budget tracker app. Many banks and investment firms offer a free version or, if you’d prefer a third-party firm for this step, consider one of many available options like Mint, Quicken, or You Need a Budget.

Make sure you also capture cash spent on the go. Consider carrying around a small notebook for a few months and write down any easy-to-miss cash outflows like a cup of joe to go, subway fare, or filling the tip jar. These drips may seem small but they can also add up over time.

2. Categorize your expenses

Now that you have all your spending in one place, it’s time to start thinking about what percentage of your money goes toward which categories. Many credit card lenders and online budget trackers may give you a head start here by automatically categorizing spending into categories like clothing, travel or automobile. Still, don’t feel you have to stick to their pre-prepared categories. The software may be powerful but it can’t know that your recent auto repair bill was for your adult child—and you’d prefer it be categorized under Child Care instead of Auto Maintenance.

At the same time, consider the effect of non-regular but predictable spending like your annual auto inspection and registration. It’s easy to leave these off your budget since they don’t happen on a monthly basis but they are important to your overall picture. Go back over the past year’s statements and identify regularly—yet infrequently—occurring expenses. Add these to your expense categories.

Finally, you’ll want to track your unexpected but necessary spending. Did the roof spring a leak? Did your daughter break her wrist? The car tire went flat? While these expenses can seem unpredictable, when viewed over a long-time horizon, it’s easier to see how often they—or similar expenses—are likely to happen. Over time, you can slowly plan for the impact of these costs so they don’t create a surprise jolt to your budget and set you back from your plan.

3. Compare money spent to income coming in

Once you know how much you’re spending, you’re ready to compare that number to the net amount you have coming in. Be sure to look at all your sources of income including your job, a spouse’s job, any child support, rental property income or any other money you regularly receive.

The hope is that the amount you earn will outpace the amount you’re spending – but that’s not always the case. Don’t fret. Knowledge is the first step toward taking charge of your money.

4. Look for ways to bridge the gap

Now that you’re aware of how much you have coming in and going out, it’s time to assess your current financial situation. Are you happy with the amount you have left over after you’ve accounted for your typical monthly spending? Are you meeting your short- and long-term savings goals? If you are, congratulations! If not, though, it’s time to start looking for ways to create more budgetary space.

Cut down on current costs. Maybe you can brown bag your lunch or cut the cable cord. Look back through your list of expenses and identify the outlays that don’t enrich your life. Those are the most effective areas to cut.

Reduce regularly recurring bills. Set a strategy to pay off credit card balances. Perhaps you can trade in your auto lease for a pre-owned car with a lower payment—or one you can buy outright. These larger money moves can sometimes require a short-term sacrifice but can also set you up for financial security over the long term.

In the end, an effective budget—one that’s created based on your carefully considered needs and lifestyle wants—can create financial flexibility over time, which can ultimately take you down the path toward the achievement of your financial dreams. There’s nothing restrictive about that.

This information is general in nature, may be subject to change, and does not constitute legal, tax or accounting advice from any company, its employees, financial professionals or other representatives. Applicable laws and regulations are complex and subject to change. Any tax statements in this material are not intended to suggest the avoidance of U.S. federal, state or local tax penalties. For advice concerning your situation, consult your professional attorney, tax advisor or accountant.

This message may contain confidential, proprietary or legally privileged information and is intended only for the person or entity named above. No confidentiality or privilege is waived or lost by any mistransmission. If you are not the intended recipient of this message, you are hereby notified that you must not use or disseminate it, copy it in any form or take any other action in reliance on it. If you have received this message in error, please delete it.

To ensure compliance with requirements imposed by U.S. Treasury Regulations, we inform you that any tax advice contained in this communication (including any attachments) was not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.

Last Updated Date
02.22.19
Important Notice about Purchasing an Annuity From Us

To help the government fight the funding of terrorism and money-laundering activities, federal law requires all financial institutions to obtain, verify, and record information that identifies each person who purchases certain annuity products. What this means for you: When you purchase certain annuity products from us, we will ask for your name, address, date of birth and other information that will allow us to identify you. We may ask to see your driver's license or other identifying documents.

Annuities are issued by The Variable Annuity Life Insurance Company (VALIC), Houston, TX. Variable annuities are distributed by its affiliate, AIG Capital Services, Inc. (ACS), member FINRA.

AIG is the marketing name for the worldwide property-casualty, life and retirement, and general insurance operations of American International Group, Inc. For additional information, please visit our website at https://www.aig.com. Products and services are written or provided by subsidiaries or affiliates of American International Group, Inc. Not all products and services are available in every jurisdiction, and insurance coverage is governed by actual policy language. Certain products and services may be provided by independent third parties. Certain property-casualty coverages may be provided by a surplus lines insurer. Surplus lines insurers do not generally participate in state guaranty funds and insureds are therefore not protected by such funds.

AIG Retirement Services represents AIG member companies - The Variable Annuity Life Insurance Company (VALIC) and its subsidiaries, VALIC Financial Advisors, Inc. (VFA) and VALIC Retirement Services Company (VRSCO). All are members of American International Group, Inc. (AIG).

This information is general in nature, may be subject to change, and does not constitute legal, tax or accounting advice from AIG Retirement Services, AIG, its affiliates and/or member companies, including its employees, financial professionals or other representatives. Applicable laws and regulations are complex and subject to change. Any tax statements in this material are not intended to suggest the avoidance of U.S. federal, state or local tax penalties. For professional advice concerning your individual circumstances, consult an attorney, tax advisor or accountant.

Investing involves risk, including the possible loss of principal. Investment values of variable products fluctuate so that investment units, when redeemed, may be worth more or less than their original cost.